Too Big to Succeed?

By Investors Group /
July 2016

The biggest companies tend to fall the most.

The winner’s curse

A well-recognized phenomenon, particularly in the Canadian market, happens when a company reaches top dog status by market capitalization. However, it can simultaneously signal the start of its demise.

Average return on investment (10 years)

Top Dogs reach the summit due to rapid growth and a widely admired business model, but studies show that these companies gradually lose their ability to grow quickly. Their fall from the top is typically as fast and dramatic as their rise.

A home country bias puts the financial security of Canadian investors at risk

The nature of the Canadian market is such that it leads to the winner’s curse and it can be problematic for investors who buy stock in emerging domestic champions. Domestic bias happens in all markets, but in a broader market like the U.S., investors have a much greater natural level of protection by diversification.